Mexican Industrial Production Still Weak in November 2014

Mexican industrial production disappointed once again in November 2014 as mining (petroleum production) continued its weakening trend. Manufacturing production remained strong in November. 

Petroleum Production Continues to Plunge

The Mexican industrial production index for November came in lower than expected at 1.8 percent on a year-over-year basis. Markets were expecting an increase of 2.1 percent. On a month-over-month basis, industrial production was also lower than expected, up 0.2 percent versus an expectation of 0.4 percent. Construction activity continued its recovery from recession, posting a growth rate of 0.8 percent (5.3 percent year-overyear). Manufacturing output, on the other hand, increased 0.7 percent on the month while increasing 3.6 percent on a year-earlier basis.

Public utilities decreased 1.1 percent versus October but increased 0.7 percent versus November of 2013. The largest year-over-year drop was recorded in mining production, which includes petroleum production, declining 0.4 percent versus October and plunging 5.6 percent versus November 2013.

Year-to-date to November of 2014 industrial production grew only 1.7 percent with mining dropping 1.9 percent, public utilities inching up 1.7 percent, construction up 1.4 percent and manufacturing production remaining the driving force for the index at 3.5 percent during the first 11 months of 2014.

One positive note from November’s release was that industrial production was revised upward in October, from an increase of 2.1 percent to 2.5 percent. Most of the improvement in October’s number was due to a very strong manufacturing sector, whose index increased 4.2 percent versus an originally reported 3.9 percent.

Growth Will Improve in 2015 but Remain Constrained

As we said last month, we are expecting the Mexican economy to continue to recover but growth will remain constrained. Although the manufacturing sector is firing in all cylinders (i.e., auto manufacturing), the rest of the economy remains relatively weak and the headwinds for this year with the strong drop in oil prices will keep economic growth from reaching higher ground.

Personal consumption expenditures as well as gross fixed investment recovered somewhat in the third quarter of the year but remain weak for the year as a whole.

The Mexican government will need to figure out how to adjust its fiscal accounts to reflect the much lower price of petroleum for this year and this will put downward pressure on government expenditures, which contributed considerably to growth in the third quarter of 2014. Thus, while the economy will continue to improve, uncertainties remain.